ANZ and CBA join in on the action, making it three out of the Big Four to do so

Australia BBSW rates are still holding at elevated levels since rising at the start of the year

That follows from Westpac's announcement last week which got the ball rolling. In short, they're raising mortgage rates to help alleviate margin pressures faced by rising short-term funding costs (shown above).

Earlier in the year, the rise in funding costs was much believed to be a global issue with the rise in Libor being the culprit that everyone was pointing to. There was the common reasoning that it was due to the new US tax reform and repatriation of funds in the dollar, yada yada. But again, it was a plausible reasoning in theory but in practise it is a difficult one to actually prove or draw out.

However, funding costs in Australia remains elevated despite the Libor-OIS spread falling recently and that is prompting lenders to believe this may not be a temporary issue but more of a structural one.

The reason that most houses seem to be pointing at right now is slowing deposit growth in the country. Although credit growth has also been slowing, most banks are also citing that household deposit growth has been slowing down even more. And that is what's ramping up Australian dollar funding costs in the money market.

With lenders unable to rely more on their deposit base to match credit demand, they need to resort to interbank funding and much like any market when demand starts to increase, so dose price/cost. And in this case, it translates to higher cost of funds for lenders who need to do so.

While all this is nice in theory (again), what exactly is the implication to the RBA and the Australian dollar?

Well, Eamonn already gave a nice summary here in case you missed it. I've also chipped in with some early thoughts last week here. Essentially, it's bad news for consumers as higher mortgage rates will continue to weigh on household savings/consumption and that will be an added drag for the economy.

The other part in all of this is that rising mortgage rates will push away home buyers and with the housing market already slowing down substantially over the past year, it's going to be another area of concern for the RBA and the Australian dollar. Winter may be coming to an end in the land down under, but it's going to be a chilly period for households and the housing market in Australia moving forward.